There's a special feature on the future of banking in the July 2014 edition of Prospect magazine. The Director of Strategy at the British Bankers' Assocation, James Barty, says that banks have to innovate otherwise competitors will eat away at their business (which I'm sure we would all agree with) and that the biggest innovation challenge facing the banks is their legacy IT infrastructure. I'm sure he is right about this too.

So this makes me wonder was the cross-over point is, where it no longer makes sense to keep patching up the legacy infrastructure and instead just chuck it (and the "military-industrial complex" that comes with it) and start again. The payment systems we are familiar with, such as card payments and direct debits, date back to a time before the internet and mobile phones. They are remnants of an antediluvian ecosystem, ill-suited to the new climate and destined for extinction.

Summers proposes a new model for the U.S. payment system: providing a narrow banking license for digital payment providers, to let them hold deposits for payment services. Two other payment experts say they have heard this discussed but wonder if the regulators would find a way to permit a light-burden banking license that would still satisfy their concerns about risk.

This is essentially what the European regulators have done under the Payment Services Directive and related initiatives and it was also one of our suggestions in our response to that Federal Reserve consultation.

The consultancy CACI has estimates 80 per cent of the UK market can be covered today by 800 branches. Jason Napier, analyst at Deutsche Bank, says 500 branches will be sufficient in 10 years’ time. The big six UK banks have 7,995 in total.

Entirely branch-free banks that focus purely on digital service are starting to appear. Atom Bank, founded by Anthony Thomson, the brainchild of Metro Bank, is soon to launch as the UK’s first “digital only” bank.
The start-up lender is expected to launch next year with a full line-up of retail and corporate products... Mr Thomson described Atom as being “in the business of data rather than in the business of banking”.

The concerning new development is that the costs are beginning to outweigh the benefits and that regulation is hurting legitimate as well as illegitimate users of the financial system indiscriminately.